This week I’ve been trying to catch up on my book reviews (you should see my “to read” shelf!), and after a good beginner book I thought I’d write about a good intermediate-to-advanced book. You’ve probably noticed there are a lot of starter books out there for novice investors but not as many with more advanced advice ($$$… the potential audience is a fraction of the size). Addressing this deficiency is the goal of The Affluent Investor by Phil DeMuth.
In terms of the title, the industry classifies you as “mass affluent” if you have investable assets between $100,000 and $999,999. From $1 million to $10 million you are “high net worth”. This definition excludes some possibly important stuff – your income, the value of your personal residence, pensions, etc. But in real world terms, I would say this book is for anyone who isn’t living from paycheck-to-paycheck. If you have a $10,000 portfolio and have a surplus each month, sooner or later you will reach $100,000. If instead you have a credit card balance and it just keeps inching up, then you need something closer to a Dave Ramsey book.
The overall tone of the book is that of a close friend who is smart and into finances. DeMuth is already a financial advisor to rich folks so the last part is expected. What I mean is that he will be blunt and isn’t afraid to make stereotypical assumptions in order to rattle off all his tips. At only 200 pages, most things are only touched upon in a concise manner. Here’s a rough outline of the topics covered:
- Big picture rules. Get and stay married. Make sure you can afford your children. Avoid debt. Save early and invest it. Diversify. Plan ahead.
- Financial advice based on life stage. He puts you in the basic “affluent” mold of 20-35s have a kid buy a house, 35-55 working hard at professional career making most of your money, 55-65 protect assets and prepare for retirement, and 65+ retire and spend down money.
- Financial advice based on job. Has special advice for doctors, lawyers, small business owners, and corporate executives.
- General investing advice and “Can you do better?” investing advice. General investing advice is keep costs low and buy index funds that closely approximate the global market portfolio. “Can you do better?” advice touches on things like value stocks, small-cap stocks, dividend stocks, momentum, low-beta, etc.
- Asset protection. Being affluent means you have money, and other people will want it. Insurance, buying real estate with LLCs, homestead exemptions, and similar topics are are very complex but his take is condensed into less than a page each.
- Tax minimization. IRAs, 401ks, Solo Pensions, 529 plans, Health Savings Accounts, etc.
Here are things you might expect from a “book for rich folks” but won’t find inside:
- You won’t get in-depth, hand-holding walkthroughs of anything. Consider the book as a push in the right direction for researching ideas.
- You won’t find his secret list of the best hedge fund managers.
- You won’t find tips on how to get rich with real estate.
- You won’t find advice on how to pick individual stocks like Warren Buffett.
- You won’t find him selling his own personal advisory services.
A general problem with all books of this type is that the advice is pretty short and to the point, but it doesn’t provide very much supporting evidence. You’ll either have to do your own due diligence, or blindly decide to trust the author. I’ve read books where the author might sound convincing but their advice is horrible. In my opinion, I think for the most part the advice in this book is good. But I’m just another person on the internet, so again do your own research.
In conclusion, I think this book covers a lot of questions that are commonly asked by the intermediate individual investor. It’s not too long and not too short. Some of the advice won’t fit your own situation, but at this level if you just find one solid actionable idea that makes the entire $18 book worth it. I’m personally going to look into the solo defined-beneift plan idea again, although I may still be too young to take full advantage.
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i would like to see more books for the advanced investor… as you observed about 99% of the books are very basic financial advice… don’t pay credit card interest, maximize retirement accounts, limit fixed overhead, save early in life etc… Maybe because so few people actually achieve wealth that the advice industry has too small a market for affluent investors? Too often books provide very little real life case studies about what the author actually did… step by step. i would love Mitt Romney to write a book about his $100 million dollar IRA… would be a best seller! At this stage in my life, mid-50’s I am at the upper end of the high net worth investor stage, always followed common sense principles did not make my money from a corporate job or any particular windfall or inheritance…. just the old fashioned way. I really admire the work you are doing. Maybe when you are in your 50’s you will write the “advanced” investor book that sets the standard! All the best.
replicating Mitt Romneys 100 million dollar IRA: get in at the ground floor of new company. Transfer ownership of that company to an IRA right before it goes public, when the market value is basically a “made up value”, and is meaningless. Mitt’s attorneys found a way to value it at 5 thousand. Right after the business went public, and after the investment is safely tucked away from taxes, the value spikes to reflect the real value another investor would pay for it on the open market.
You can also use options to leverage an IRA well above 5000$ initially, but you wouldn’t get to anywhere near the scale of 100 million
Actually what Romney did was use his IRA to invest in the general partner’s stake in his private equity funds. The GP of the fund receives (in the case of Bain) 30% of all the profits associated with the partnership (carry for a typical manager is 20%). So in the early days the GP would put in a relatively small amount of money (say $1 million) and raise a $100 million fund from investors that would triple in value investing in private companies, meaning the general partner would get $60 million of the profits (30% of $200 million in profits on $100 million invested). Romney would get a share of that $60 million as one of the members of the GP and the part that he funded out of his IRA (say 5% or $5k of the $1 million total GP investment) would grow to $3 million. That’s a 600 times return on investment.
Repeat, and you can get to a $100 million IRA.
However, that’s not the kind of investment available to nearly anyone else.
Dang, a solo 401(k) is interesting enough… Can’t imagine setting up a solo pension plan!
It’s very intriguing and you can do both solo 401k and solo pension… I especially like the part where you simply roll things over into an IRA if your business ends before your retirement age. You’ll have to pay some regular administrative fees every year plus setup fees, but I haven’t nailed down all the numbers yet. The problem is that if you aren’t close to retirement, you can put that much into the plan.
Or I could get the book from the library and invest that $18 in the no load mutual funds I already have.
I’m over 55, retired and have more money than I thought I would at this stage of life. I think I did all the items the author listed.